Of renewable energy and magic puddings

Twitter is in meltdown about a report by ACiL Tasman commissioned by the Renewable Energy Target (RET) review, which has found that if subsidised electricity is provided to the market, the price falls. Laura Tingle has an article on it in the AFR. On the same page there is an article featuring a trio of rentseekers from Acciona, Senvion and Infigen who have waxed rich on the renewable subsidies and claim that scrapping the RET won’t bring a fall in power prices.

The ACiL Tasman report models the effect of the RET, which forces electricity consumers to incorporate within their supply an increasing proportion of renewable energy as defined by the program – largely wind, rooftop solar and major solar facilities. The proportion consumers are required to incorporate in their supply grows to a theoretical 20 per cent by 2020. The renewable energy eligible for subsidy costs about $100 per MWh for wind, which is nine-tenths of the renewable supply, and maybe twice that for solar. It is intended to displace commercial coal-generated electricity which costs about $40 per MWh.

So how can it bring about a fall in price?

Well the operating costs of the renewable energy are about $12 per MWh (the energy is not free because the windmills need maintenance and the solar panels have to be cleaned). The rest of the costs are sunk. So, as long as the price is over $12 per MWh (and it is three times that even without the carbon tax) the renewables in the ground will continue operating. This drives down the price from what it otherwise would be.

A good thing eh?

Not quite.

For a start, the subsidy to wind has diverted $20 billion of investment into a source of supply that is intrinsically uncompetitive – it is almost as though we decided to subsidise domestic clothing factories in competition with cheaper suppliers in China (oh wait, we used to do that!). That $20 billion is capital equipment deliberately funnelled into low productivity assets.

And, though the renewable energy subsidy puts downward pressure on price, it does so in the same way that distribution of half-priced Mars Bars would pull down the price of all Mars Bars. As in the Mars Bar example, somebody pays (in this case the consumer forced to subsidise the renewables), and the subsidised product has a distorting effect on the whole of production. Were this not the case we could invent the magic pudding and have government subsidise cars, food and housing and in the process bringing great riches to us all.

Subsidies must be paid for and if they had benign effects we would be using them for everything. Not only are the renewable subsidies’ immediate costs offset by higher charges and taxes elsewhere in the system, but they deter commercial investment in new and replacement capacity and therefore need to be constantly increased.

Addenda

Acil have now posted their slides. https://retreview.dpmc.gov.au/sites/default/files/papers/preliminary_modelling_results_workshop.pdf

They used many assumptions, one of which that a new coal power station would need to get $55 per MWh to be viable - very high when our coal resources are understood. If we could meet US build productivity, (eradicate union monopolies?) we could get new coal power at under $40 per MWh.

But renewables do not work; it’s as simple as that; if you want reliable, on demand grid power then you can’t use renewables. If you want expensive, sporadic power then shove a solar panel up your arse.

Well, Bear, I feel pissed off. Alan Moran needs to take off the gloves and start hammering people who lie. Hammer them like Conan even if she is a girl. Even tho you’re outnumbered, Alan. Otherwise no-one knows anything and never will.

Talking about solar panels I would like to make some comments. I installed my second set of panels on my house a few months back having sold the original house. It’s a 3kw. system and produces enough power for my requirements which are very low using gas for cooking and hot water. For the last quarter the electricity bill was:
Residential tariff 324 Kwh @ 26.73c. plus a supply charge of $49-72 = $144-99

Solar input 750 Kwh @ 8c. – $60-00

Daily production on June 21 was 11.5 Kwh and Dec. 21 about 16 Kwh., with sunny blue skies, however on cloudy days it can be half of these figures.

I know that the Federal Govt. paid a subsidy of approx. $2,000 for solar credits with the installation, and production is restricted to the period between 11am. and 5 pm. due to its orientation, but the point I make is that my excess power is sold to neighbours without solar for three times its cost so someone is making a profit and I still have an electricity bill. Overall there are periods of peak demand for power and electricity authorities cater for these, even with coal fired stations, as there is no solar production at night as well as little demand and some authorities provide off-peak tariffs. Collectively, the solar arrays are producing a considerable amount of power which means less capital expenditure in building new stations

Here’s another variable cost that wind farm operators, at least, should be paying. In 2009 Exxon was fined US$600,000 for the deaths of 85 birds. That is US$7,000 each, or about Oz$7,500.

In the US the wind industry kills about 440,000 birds each year. Which equates to about 7 birds per each MW of installed capacity. Typically wind farms produce about 25% of their installed capacity, so the actual number of birds killed per MW of despatched power per annum is about 28.

So the cost per MWh in imputed fines is 28 x 7,000 / 8760 = $22 per MWh. Which is bit more than half the wholesale cost of coal fired power, based on the AEMO prices on 30 June 2012, which I was watching with interest that day. The carbon tax roughly doubled the wholesale price of power overnight in most states, and tripled it in Victoria.

In other words wind farms have an implicit subsidy of $22/MWh on top of the actual subsidy of something like $100/MWh.

And this silly study thinks more environmentally sustainable bird killing power will reduce peoples’ power bills. Dumb as especially dumb rocks.

And next time Numbers or someone complains about the so-called diesel subsidy that miners get, hit him with this calc.

Robert O, I imagine the profit you refer to is illusory – surely it’s being used to recoup the initial subsidy?
I shudder to think of cold winter nights with dinner cooking, radiator on, kids doing homework under decent lighting and all being powered by solar (which finishes at 5pm in your case).

I know that the Federal Govt. paid a subsidy of approx. $2,000 for solar credits with the installation

Robert, for an apples to apples comparison you have to include the imputed cost of load levelling. Which would be a hefty battery system for a domestic installation.

You did not have to install ten grand worth of batteries (which would have an operating cost around two grand per annum in replacements for failures) because the power generators do this service for you for no charge.

After 5pm they have to generate sufficient coal fired power to meet the evening peak. But because of people like you they have to reduce their generation during the sunlit hours. But their capital cost is the same. You (well, the government) have stripped from them their ability to service the sunk capital for their power stations, since they have a legal and moral requirement to keep the power supplies up to demand.

This is unfair. The actual value of the power you generate during each day is probably somewhere between -5 c/kWh and 1 c/kWh. Yet you are paid 8c/kWh. Alternatively you should have paid a subsidy to the power generators of the value of your proportion of their depreciated installed capacity, since you are forcing them to load-level for you.

I don’t have the numbers off the top of my head, but to go completely off-gid you probably would have had to pay three times the cost of the original panels. And as you know from your car, the batteries only last 5 years or so, so that operating cost would be yours to pay if you were off grid. I doubt you would have bought your panels if you had had to pay the full implied cost, even with the subsidy.

That is the problem. I do pay all those imposts that you do not, because in my view it would be personally immoral for me to install panels on my roof. And then I also pay the “poles and wires” component because the local transformers were not designed to run backwards to take in the power generated by people like you.

Sorry mate. I’m not meaning to give you a hard time: your personal decision was correct for yourself. But I’m illustrating that you are screwing everyone else by that decision.

Subsidies…inefficiencies…misallocated capital? hmmm. Farmers have long argued the case that subsidised imports cause damage to efficient local producers but curiously we find economists and the ACCC finding no harm as consumers are beneficiaries of cheaper foods. It seems to me that many free market thinkers find the costs of subsidies palatable if they are incurred offshore but not when they are domestic. I like to call it “Parochial Economics”. Our last Federal Government excelled in this field. Perhaps Alan could use a tin of tomatoes as an example instead of Mars Bars but it may be difficult to find an Australian can as subsidised imports killed off the local competition. Seems to me that subsidies don’t work except in the cases where they do.

Farmer Gez, nobody disputes that subsidised farming in other countries hurts both the taxpayers in those countries and the farmers here. The problem for you is that I, as a non-farmer, don’t believe that I should give you money through direct subsidies or through higher prices. I’m very happy to buy the cheaper tomatos or whatever. I also don’t believe that my tax dollars should be your insurance policy against climatic events.

Alan, yes, if you ignore sunk costs, as you should (they’re sunk after all), then existing renewables investment might reduce future energy costs (but I’d like to see the assumptions). However, that is not an argument for sinking more costs and the debate on the target is a debate about continuing to subsidise cap-ex on renewables.

The only useful question is whether investing now in renewables will in time lead to a return on ivestment that justifies the current expenditure given the alternative energy investments that could be made. As a rule of thumb, if you need to subsidise an investment you’ve already answered the question.

Also, skimming the article in the paper, I think I saw some assumptions about future prices on carbon, which is pretty funny given the total failure to reach a globan deal so far.

Robert, the 8c /kWh is the wholesale price of electricity. Basically what the retailer pays the coal or gas fired power station. You must be in Queensland, because in other places the state governments have mandated the solar providers get paid almost double retail price for what is a wholesale product.
The retailer also has to pay for distribution(poles and wires), a whole host of other costs and also have a bit of profit to make it worth the bother. So the difference between 8 and 26 cents seems reasonable.

By the way, 324 kW for a quarter? That’s about 3.5 kW per day. Impressive. Do you live alone and are never home?

Even in America the only people helped by farm subsidies are the large scale corporates. The little family guys trotted out in arguments to keep those subsidies are trotted out because they are living in rural poverty, so the USA’s voter feels sorry for them and are thus likely to support the subsidy provision.. Get that? They live in rural poverty, even though they are already getting farm subsidies!

All the subsidy does is encourage people on the margin to hang on just that little bit longer. Their scale is such that they still have to live on the smell of an oily rag even with the subsidy. I guess the only difference is that the farmer that can continue living on the smell of an oily rag in America is an even smaller farmer than the ones we have here living on the smell of an oily rag.

Okay Pedro. Then I should be able to access workers from overseas at low pay rates. Why should I compete internationally and yet pay mandated pay scales that simply prop up inefficient and overpriced Australian labour? You benefit from cheap food but I’m stuck with high costs which subsidise your standard of living. Once again, Parochial Economics!

Of course the market spot price for electricity is lower when subsidised power is dumped on it.

That’s because the up-front costs for the power have been removed from the market price.

Put the subsidies back in by averaging it out of the kWh generated and you have a very different story.

Renewables are like two kids who get their dad to buy a carton of coke, an esky and some ice, then stand outside a corner store dumping their product on the market for 50c a can and keeping the revenue, while inside the store is paying rent, insurance, lighting, refrigeration. wages and supply and has to charge $1.50.

The kids laugh and point at the hapless store owner and tweet about what clever little business people they are. And their friends are amazed at their money-making prowess.

brc
#1359716, posted on June 25, 2014 at 1:42 pm
[...]
Renewables are like two kids who get their dad to buy a carton of coke, an esky and some ice, then stand outside a corner store dumping their product on the market for 50c a can and keeping the revenue, while inside the store is paying rent, insurance, lighting, refrigeration. wages and supply and has to charge $1.50.

The kids laugh and point at the hapless store owner and tweet about what clever little business people they are. And their friends are amazed at their money-making prowess.

The other pernicious aspect of RETs is that they adversely affect the profits of conventional energy suppliers, because wind and solar get priority on the grid, when they happen to be producing something. So the coal or gas stations have to power down and then power up again when the wind stops blowing or the sun stops shining. Since these stations are designed to operate continuously, it reduces their efficiency and ROI.

The UK’s foray into “renewables” has screwed the rest of the industry to the extent that investment in new plants has ground to a halt. The only thing on the horizon is a squillion dollar nuclear plant which taxpayers are going to have to subsidise. And yet, energy prices continue to inexorably rise beyond the rate of inflation.

“You benefit from cheap food but I’m stuck with high costs which subsidise your standard of living.”

But your high costs are no subsidising my standard of living. I’m not a farm worker. But protection for you would involve me subsidising your standard of living. Stupid foreigners are leaving money on the footpath and you say we should not pick it up.

Entropy, as I have said I use gas for cooking and hot water. But although I have aircon I rarely use it knowing it uses heaps of Kw. and fans are quite adequate, and you don’t have the differences in temperature between inside and outside.
Previously, with a 44c. feed-in tariff one didn’t use much power during the day and tended to use the dishwasher etc. overnight. Now one does everything during the day when the solar panels are operating.
The discussion brings out various points of view and this is good, but in view of the amount of sunlight Australia receives shouldn’t we be going flat-out to develop large scale generation? Pumping water uphill during daylight hours is one way of storing energy, but there must be better ways than batteries which need researching.

Well I use about 5x that much power, and mostly use fans, but the house is large and large family so probably 6 ceiling fans are usually going at once. Plus damn kids keep leaving the Xbox turned on. Sounds like an aircraft on take off when you walk in the room, then you are the bastard for turning it off and losing their game progress. Sigh.

The discussion brings out various points of view and this is good, but in view of the amount of sunlight Australia receives shouldn’t we be going flat-out to develop large scale generation? Pumping water uphill during daylight hours is one way of storing energy, but there must be better ways than batteries which need researching.

Well. Yes, if it makes economic sense. With current tech it is just making everything more expensive for no gain. But if the tech improves why not? I am sure it could theoretically, one day.

As for the specific of pumping water uphill, not in this country. Not enough storage sites and those that are should be prioritised for water supply. Also not only initial tech costs but also efficiency losses make it even more of a bad investment.

There is no need for complicated arcane calculations, wind and solar are not viable substitutes and probably never will be because the energy source is too dilute intermittent and unreliable, end of story.

our, a surprising number of rent seekers will look you in the eye and with all their earnestness tell you that when you subsidise something, more of the subsidise good or servicewill be produced. And the fact that more is produced is a very good reason to subsidise it.

the fact that supply curves slope in a certain well-known direction is a revelation to some.

Pedro. I do business everyday in the cut and thrust of world Ag trade and I know for a fact that Aussie consumers do very well out of the export parity pricing system. Many overseas consumers pay cost-plus for their food as most is imported (import parity pricing). You do not have to be a farm worker to benefit from this. I’m afraid that dealing with trade at an international level has left me somewhat jaded with blanket statements on subsidies. I have never wanted them but they can be effective on driving out competition and rewarding inefficient behaviour. Thus the RET can work in lowering prices, it just depends who picks up the cost and can they afford to do so. Consumers in Australia pick up the benefit of subsidised imports but farmers lose out. Renewable energy companies and their investors pick up the benefit of the RET and you and I both lose. I think we can agree on that. Cheers.

Probably the neatest idea for pumped storage is to use the sea – build a big wall out into an especially deep bit of sea and pump out instead of pump up. But the energy losses are pretty huge, and the capital is high, so you would only use it if there was no alternative at all. Effectively you would be tripling the capital cost and halving the yield, so the cost would be 6 times the current cost of solar energy. At least.

But there is an alternative – nuclear. Wind and solar are just recycled nuclear power from the Sun. Using fission or fusion nuclear we cut out the middleman.

This is bullshit. Robert O pats himself on his no doubt solar powered back at how clever he is living like Moses in the wilderness. Where doe he go when he needs his appendix out, his kids educated; does he grow his own food and police his own property; does he go to a wind powered Coles and travel on rodent powered public transport?

The point is rugged individuals like Robert O are not only bludgers off the rest of the citizenry but undermine the community infrastructure while still using that infrastructure.

Renewables are the cutting edge of the bubble-headed class’s moral indulgences and hypocrisy. And the only reason we are having this conversation is that bubble-headed class believes in AGW.

That is the problem. I do pay all those imposts that you do not, because in my view it would be personally immoral for me to install panels on my roof. And then I also pay the “poles and wires” component because the local transformers were not designed to run backwards to take in the power generated by people like you.

Sorry mate. I’m not meaning to give you a hard time: your personal decision was correct for yourself. But I’m illustrating that you are screwing everyone else by that decision.

Agreed with bells on.

The people who can afford the outlay of a solar system get subsidised by those who are too poor to afford them through higher electricity costs. So poor people are making ‘eat or heat’ decisions to pay subsidies to people who got a solar system. Thanks, greenfilthers!

This is unethical and immoral – it is, in my view, stealing from those less well off than you.

I can afford solar electricity, and I absolutely refuse to get it.

I am not a thief.
Yes, I have said this to people with such systems who boast about them, and to those who insist on coming to my place (no solar panels visible on my roof!) to flog one to me.

I do not criticise those who have such systems, most are gullible and a bit greedy (human beings, in other words), and believed the lies the greenfilth spruiked.

I DO have solar hot water and I paid for that myself specifically to reduce my electricity use. It’s also not subsidised by people less well off than I am.

We do also have solar electricity on the rather rough cabin where I take my annual hunting trip. First we bought the panels, and a large clapped out forklift at auction which just happened to have a new battery. And we built a 12v system for the cabin. Getting the battery in (1.5 tons of it) was a copper-bottomed bitch as the place is remote and in high country. Had to parbuckle the bastard up half a K of track, no winch would pull it directly in those conditions. Took 4 days running a diesel genny to charge the bugger. The whole thing cost us about $5K. No subsidies there either, just lots of skinned knuckles.

Might pay to check the economics of using gas for space heating and hot water systems. My understanding is that increases in gas prices might have turned the economics back in favour of reverse cycle air conditioners and solar/electric boosters.

As a one person household my bills are pretty small. The costs for families is astronomical, although much of the air conditioner use over the Perth summer really falls into a “lifestyle choice” over what might be termed essential use when it gets well past the old century mark.

Twitter is in meltdown about a report by ACiL Tasman commissioned by the Renewable Energy Target (RET) review, which has found that if subsidised electricity is provided to the market, the price falls.

This is ridiculous.

How much did ACiL Tasman get payed for this rubbish? How can supposed experts come to a conclusion that even Blind Freddy can see is absolute tosh? Do their calculations include the cost of the subsidy?

And let’s not forget all this expense is in order to stop CO2 entering the atmosphere where it will kill all the polar bears or something. How much longer do we have to put up with this insanity?

As for the specific of pumping water uphill, not in this country. Not enough storage sites and those that are should be prioritised for water supply. Also not only initial tech costs but also efficiency losses make it even more of a bad investment.

???

So you think we should demolish Talbingo Dam and Tumut 3 Power station?

All you need to know about wind power is right there at the link below. There are many, many hidden costs (e.g. keeping those coal generators idling over to kick in right away during calm periods, and increased transmission costs). It is a good read. US-based analysis, but Australia would be very similar.

That is the problem. I do pay all those imposts that you do not, because in my view it would be personally immoral for me to install panels on my roof. And then I also pay the “poles and wires” component because the local transformers were not designed to run backwards to take in the power generated by people like you.

I still can’t understand the green position on rooftop solar in particular. The manufacturing process involves the use of highly persistent environmentally toxic chemicals. The chemical etchants used, sulfur hexafluoride and carbon tetrafluoride are the number one and two worst greenhouse gasses known to man according to the Kyoto protocol. Both of which have mean reasonance times of several thousands of years in the atmosphere.

And a bloody panel lasts at best 15 years in Australian conditions due to UV degradation, over-voltage and heat degredation. Give me supercritical coal fired power stations, or give me death.

As part of its energiewende, Berlin promised solar and wind energy producers long-term, above-market rates (called feed-in tariffs) for their electricity as a way to help boost the country’s fledgling renewables industry. The plan worked, and some will tell you that the solar and wind energy industries are thriving in today’s Germany. But these energy sources, green though they might be, are terribly expensive, and feed-in tariffs are the only reason they’re finding a foothold in the German market. The costs of these feed-in tariffs have been passed on to consumers, both households and industry alike, in the form of green energy surcharges—making German electricity prices some of the highest in Europe.

Berlin attempted to shield energy-intensive German industry from these surcharges by exempting some of its biggest electricity consumers, but in doing so fell afoul of the EU’s competition laws

The Germans wouldn’t be exempting industry from ‘sky high electricity prices’ caused by high FITs unless they had to to stop those industries fleeing the country…like our car makers all are.

Rohan
#1360366, posted on June 25, 2014 at 10:26 pm
I still can’t understand the green position on rooftop solar in particular. The manufacturing process involves the use of highly persistent environmentally toxic chemicals. The chemical etchants used, sulfur hexafluoride and carbon tetrafluoride are the number one and two worst greenhouse gasses known to man according to the Kyoto protocol. Both of which have mean reasonance times of several thousands of years in the atmosphere.

Don’t forget all of that yummy cadmium, arsenic and rare earth metals…

Friends and I have discussed the possibility of setting up a new business in around 5 years removing unwanted solar panels from roofs, thinking there will be quite a market for it and that market will be steadily growing. Of course, what to do with them then is a problem. How are the unwanted solar panels to be disposed of safely.

Dianeh – An interesting stat for you is solar panels use about 1.33 oz of silver per kW of capacity, which means a typical 4 kW rooftop installation has 5.3 oz of silver in it. Newer panels tend to use less than older ones, as you might expect.

Getting at it is probably not so easy though since silver is best recovered by dissolving it with sodium cyanide.

Hmm, if you found an easy way to remove the glass panel, the solar cell plate itself could probably be bundled and packed off in a container to a recycler in China for a profit. They might pay a proportion of the silver price. The glass panes could be disposed anywhere fairly safely.

This diagram on the wiki page suggests solar panels also contain some palladium. Pd is about 40 times silver in price. That also would be attractive to precious metals recoverers. The aluminium backing could be recoverable too, but it takes a lot of aluminium to make a tonne, since it is so light. You might not bother.

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